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The Influences of Margin Trading and Short Selling on Volatility of China Security Markets

Author: WangYangMing
Tutor: XieShengFeng
School: Hubei University
Course: Finance
Keywords: Margin Trading Short Selling Market Volatility VAR model
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Type: Master's thesis
Year: 2013
Downloads: 34
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Abstract


The margin trading and short selling mechanism has launched nearly three years, and the scope of the underlying securities has been expanded two times, with the steady growth in trading volume and balances, the trades of investors are more and more actively. The margin trading and short selling mechanism is an important standard to judge China’s securities market becoming mature, and has the mission to introduce the short selling mechanism, build a multilateral market structure, enhance the degree of marketization and reduce the risk of stock market. But the margin trading leverage itself has a certain degree of risk, stock market environment in China is still not perfect, the introduction of margin trading on the security markets is worth us to constantly research and analysis. The linkage relationship between the margin trading and market volatility, whether the margin trading stabilize market effectively, is the concern of many scholars and regulators.This paper takes the perspective of development, and base on the market data on margin trading of nearly three year, which was divided into two intervals study. It not only explores the relationship of margin trading and stock market volatility, and also analyses the changes between two development periods of margin trading, the changes and reasons of the consequent impact to the stock market volatility. The empirical research is mainly used the VAR model. Granger causality test and impulse response function method. It proved that margin trading can stabilize market volatility, this effeet is a dynamic market processes; the margin trading and short selling volume is still at a low level, and the impact to market volatility was small; in the initial period, the volume of short selling was very low, and only the margin trading have an impact on market volatility, there was a two-way causal relationship between margin trading and market volatility, both as the Granger causal to each other; short selling volume rose sharply in the past year, the significance of the impact of short selling to the market volatility is increasing, and the influence of margin trading on market volatility was weakened, there was an one-way causal relationship between short selling and market volatility, that is, short selling Granger caused market volatility.

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